BP 2012 Annual Report Download - page 140

Corporate governance
BP Annual Report and Form 20-F 2012
138
Operation
For 2013, all executive directors will again be eligible for a total bonus
(including deferral) of 150% of salary at target and 225% at maximum.
Bob Dudley’s bonus will be based entirely on group measures as will
Dr Brian Gilvary’s and Dr Byron Grote’s. Iain Conn will have 70% of his
bonus based on group results and 30% on his business segment.
The group strategy provides the overall context for the company’s key
performance indicators and the focus for the annual plan. From this,
measures and targets are selected at the start of the year for senior
managers, including executive directors, to reflect the key priorities of the
business. Measures typically include a range of financial and operating
metrics as well as those relating to safety and environment.
The committee has a preference for quantifiable, hard targets that can be
factually measured and objectively assessed according to well understood
principles and definitions. Where it is more appropriate to have more
qualitative measures, the information that will be reviewed to arrive at
conclusions is established at the start of the year. Targets are set so that
achieving plan levels of performance results in on-target bonus.
At the end of each year, performance is assessed relative to the measures and
targets established at the start of the year, adjusted for any material changes in
the market environment (predominantly oil prices).
As in past years, in addition to the specific bonus metrics, the committee
will also review the underlying performance of the group in light of the
overall business plan, competitors’ results, analysts’ reports, and seek
input from other committees on relevant aspects. When appropriate, the
committee may make adjustments to a straight formulaic result based on
this fuller information. The committee considers that this informed
judgement is important to establishing a fair overall assessment.
The rigorous process followed by the committee has resulted in
bonus levels varying considerably over the past several years, reflecting
the changing fortunes of the company during the period.
The chart below shows the average annual bonus result (before any
deferral) and relative to an on-target level for executive directors
for 2012 as well as the previous five years.
Performance measures
The measures used to determine bonus results flow directly from the
group’s annual plan which reflects the strategic priorities of safety and
operational risk management, and reinforcing value creation.
A central strategic priority continues to be safety and managing risk.
As last year, performance in this area will account for 30% of group
results for bonus purposes. The primary measures used to assess
performance will be loss of primary containment, process safety tier 1
events, and recordable injury frequency. The first two of these track
process safety while the third reflects personal safety and this balance
gives an overall perspective on performance. The committee will also
seek the input of the safety, ethics and environment assurance committee
(SEEAC) to determine if there are any other factors or metrics that should
be considered in arriving at a final assessment at year end.
A second set of measures will track performance relative to value creation
and account for 70% of group results for bonus purposes. This reflects
increased emphasis on restoring value from last year when it accounted
for 50%. The ‘rebuilding trust’ set of measures, accounting for 20% last
year, will not feature in 2013. Three financial measures for value creation
include operating cash flow, underlying replacement cost profit, and total
cash cost. Three additional operating metrics include upstream major
project delivery, upstream planned deferrals, and Downstream net income
per barrel. This set of metrics provides a balance of financial and operating
priorities, as well as significant continuity from last year.
The Downstream segment will include specific safety metrics for the
segment. Value metrics will include availability, efficiency, and profitability
measures, as well as divestments and major project delivery.
History of annual bonus results
2007 2008 2009 2010 2011 2012
200
150
100
50
On-target Average actual result
% of target
Annual bonus – 2013 policy